The Economic Impact of Napa County’s Wine and Grapes Prepared for Napa Valley Vintners November 2012 A STONEBRIDGE RESEARCH REPORT Copyright ©2012 Stonebridge Research Group™ LLC 105b Zinfandel Lane, St. Helena, CA 94574 www.stonebridgeresearch.com All rights reserved. No part of this publication may be reproduced, stored or transmitted in any form or by any means without the prior written permission of Stonebridge Research Group LLC. HIGHLIGHTS FULL 2011 ECONOMIC IMPACT OF WINE PRODUCED IN NAPA COUNTY $13.3 billion in Napa County $25.9 billion Total California $50.3 billion Total US NAPA COUNTY TOTAL CALIFORNIA TOTAL US Number of Licensed Napa Wineries, 789 2011+ Winery Wholesale Revenue, 2011 (plus †† $3.7 billion exports) ††† Winery Direct Sales, 2011 $744.7 million Cases of Napa Appellation Wine 8,401,300 Produced 2011 Total Retail Value of Napa Appellation $12.1 million $1.2 billion $4.7 billion Wine sold 3-Tier, 2011 Total Cases of Wine Produced in Napa 49.7 million County Total Retail Value of All Napa County $16.3 million $2.1 billion $9.3 billion Wine sold 3 Tier, 2011 Number of Vineyards 1600* N.A.** Vineyard Acreage 43,581 125,267 Grape Crop Size (Tons) 121,872 718,178 Value of Grape Crop/Vineyard Revenue $423,441,900 $765,578,185 Full-time Equivalent Jobs 46,000 102,000 303,000 Wages Paid $2.1 billion $4.7 billion $9.2 billion Wine Related Tourism Expenditures $1.05 billion Annual Number of Winery Visits 3.8 million State & Local Taxes Paid $661 million $1.2 billion $2.5 billion Federal Taxes Paid $621 million $1.3 billion $2.7 billion Charitable Contributions $84 million Source: Stonebridge Research, Washington NASS, US Bureau of Labor Statistics and Industry Interviews. *Total vineyard permits. Not all are commercial growers. ** We did not attempt the estimate the number of non-Napa vineyards growing grapes for non- appellation wine processed in Napa. + Winery number from TTB permit list. Stonebridge Research: Economic Impact of Napa County’s Wine and Grapes, 2011!Page 2 of 19 Executive Summary Not only is Napa County home to a major share of California’s wine heritage as well as many of its most admired wines, the county also accounts for a significant share of California’s wine industry. In 2011, Napa County, including both Napa Valley appellation wines and wines produced in Napa County1 from grapes from other regions, produced about 20% of all the wines produced in California and between 16% and 17.5%2 of all the wine produced in the United States, according to data provided by the Alcohol and Tobacco Tax and Trade Bureau of the US Treasury Department. Sales of wine produced in the county account for 52% of the total retail value of all the California wine sold in 2011 and 26.6% of the volume of all such wines. This scale of wine activities in the county is reflected in its economic impact. In 2011 Napa’s wine industry had a total economic impact of more than $13 billion on Napa County’s economy, $26 billion on the California economy, and $50 billion on the American economy, as detailed in Table 7 below. This second update of the economic impact of Napa County wine and grapes is distinguished from the previous studies by: The inclusion of estimates for all the wine produced in Napa County, not just Napa Valley appellation wines, thanks to the generous cooperation of some of Napa’s major producers. More thorough consideration of the suppliers and service providers to the industry, as discussed below. A Note on the Data Each time we do these studies we need to stress that there is hardly any public or standardized data on this complex industry. The State of California Department of Forestry and Agriculture, through its division of the National Agricultural Statistics services (NASS), provides substantial and detailed data on grape production, acreage, and sales, down to the district level -- and fortunately Napa is a single district. Wine sales volumes can be deduced from Federal and state excise tax data, although such data is not available for entities below the state level. National and state level wine production numbers and wine sales volume indicators (wine removed from bond) are published by the TTB and county level detail can be obtained on request. Winery numbers can be obtained from both state (California ABC) and Federal sources (TTB) -but these numbers seldom agree, due to timing differences in permit approvals and cancellations and different license categories at state and federal level. 1 For this report, wine produced in Napa County includes wine blended, bottled or grown within NapaCounty. 2 Napa county wines accounted for 17.5% of all wines bottled in the US in 2011 and 16.1% of all wines fermented in the US in 2011, according to TTB data. TTB defines “production” as fermenting, with bottlingas a separate activity. Napa County bottles somewhat more wine that it ferments, as some largeproducers centralize their bottling activities from adjacent regions in the county. Stonebridge Research: Economic Impact of Napa County’s Wine and Grapes, 2011 Page 3 of 19 No region can provide specific vineyard counts, as vineyards are often held in multiple parcels for private tax reasons. Employment and wage data by county is available for certain industry categories from the US Department of Labor Bureau of Labor Statistics. Fortunately, wineries and vineyards are specific categories for such data -- but most supplier industries and services (e.g. cooperages, bottles, closures, capsules, tanks for wine, wine laboratories) are buried in broader categories such as “glass containers” or “wood processing.” Moreover, even for specified categories, these data only cover employees eligible for unemployment insurance, thus excluding owner-operators, contract and part-time workers. Revenue data is not available from any published source. Thus, these studies depend on diligent primary research: multiple industry interviews combined with searches of multiple sources for pieces of information that can be assembled to substantiate an estimate. To provide a metric for the effort, we tracked employment, revenues, and wages for approximately 72 industry activities for this study, with about 200 phone calls, emails, and meetings in addition to more conventional data and document searches. Much of this process is explained below but please understand that these findings are best available estimates. Wine Produced in Napa County Many of the wineries established in Napa County prior to 1990, including some of the major wineries in the US, traditionally produced wine from grapes grown in the Napa Valley (wine entitled to carry the Napa Valley appellation and the various Napa Valley sub-appellations) as well as from grapes grown in other regions of California, making all of their wines, in all price ranges, within the county. The passage of the Winery Definition Ordinance (WDO) in 1990 required wines produced in wineries developed after that date to have at least 75% Napa grapes. The WDO is considered a cornerstone protection of Napa’s Agricultural Preserve and the agricultural character of the county. The scale achieved by these major producers, along with the quality reputation of Napa Valley wines, attracted many suppliers and service providers to Napa County, including bottling, processing, and storage facilities in the southern part of Napa County. This cluster of industry expertise attracted still further vintners, winegrowers, and service providers to the county, making Napa a key center of the California wine industry. The Alcohol and Tobacco Tax and Trade Bureau (TTB) provided, in response to a special request by the Napa Valley Vintners, the following data on total volume of wine produced and bottled in Napa County for 2010 and 2011 and the total volume of tax-paid wine removed from bond in Napa County for the same periods. Tax-paid wine removed from bond is a reasonable indicator of wine sales by Napa producers (although it excludes exports, which are not subject to excise tax.) Table 1: Estimated Total Napa County Wine Produced and Sold, 2010 and 2011 2010 2011 (case equiv.) (case equiv) Total Wine Bottled 47,403,049 49,699,359 Total Wine Removed from Bond 52,143,889 53,574,387 Source: TTB Stonebridge Research: Economic Impact of Napa County’s Wine and Grapes, 2011!Page 4 of 19 In both 2010 and 2011, wine removed from bond exceeded estimated production, most likely because wine was sold out of inventories, which had grown as sales of more expensive wine fell with the onset of the recession in late 2008 through 2009. Based on these data, and further data published by TTB on California and US wine produced and bottled, we have estimated that Napa County wines account for one in five bottles of wine produced in California while Napa Valley appellation wines account for 3% of such wines. The TTB does not track wine production by AVA. Production volumes for Napa Valley wines have been estimated from grape production data and industry interviews. Table 1: Napa County Wine Produced as Share of US and California Wine Produced Cases (million) % of US Wine % of CA wine Total US Wine Bottled, 2011 283.5 100.0% Total California Wine Bottled, 2011 248.1 87.5% 100.0% Total Napa County Wine Bottled, 2011 49.7 17.5% 20.0% Napa Valley Appellation Wine Bottled, 2011 8.4 3.0% 3.4% Source: Stonebridge Research, industry interviews, TTB, California NASS The total retail value of all the wine produced3 in Napa County, including sales through the 3 tier system as well as direct to consumer and export sales, is estimated to have totaled $10.1 billion in 2011, with the retail value of Napa Valley appellation wines estimated at $5.5 billion, or 55% of the value of county’s wine sold while only 15.6% of the volume of the county’s wines.